It was a bloodbath in bond markets today, with Treasury yields rising sharply. The 10-year yield jumped 12 bps to 4.97%, just 3 bps shy of the 5% level I’ve been talking about for a long time. With the yield trading above its upper Bollinger Band and the RSI well above 70, I wouldn’t be surprised to see some consolidation or even a pullback after tomorrow’s CPI report.
If the 10-year yield breaks above the November 2023 highs near 5.02%, we could be looking at 5.25% as the next potential stop. The chart looks like a large symmetrical triangle or bull pennant, which could point to a move well beyond 5.25% further down the road.
The 30-year yield moved above 5.35% today and, as noted previously, appears to be forming a giant ascending triangle, another bullish pattern suggesting yields could move higher. With resistance now broken, the weekly chart points to the next resistance level around 5.55%.
The 2-year yield rose 15 bps today to 4.58%, and I see 4.80% as the next potential stop, with little resistance between here and that level. I could see the 2-year not only trading at 5%, but potentially above 5%, because the Fed will have no choice but to raise rates and take back all of last year’s cuts. Unless we start to see financial conditions start to tighten on their own.
Speaking of financial conditions tightening on their own, HYG’s dividend-adjusted chart looks almost identical to the S&P 500’s. What stands out today is that HYG broke below a rising wedge, probably the last thing equity investors want to see at this point. If rising Treasury yields start to take a real toll on high-yield bonds and credit spreads begin to widen, equity investors could start feeling the pain the bond market is already experiencing.
Anyway, see you over the weekend
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